As I blogged last week, state budget forecasters are not predicting much growth in revenue collections over the 2013-14 fiscal year. In fact, tax revenue is projected to have the smallest rate of growth since the 2009-10 fiscal year, according to official estimates from the Pennsylvania Department of Revenue.
The picture is even worse when you look at corporate tax collections alone, which are expected to decline by 4% from 2012-13 to 2013-14. As I explain in a full analysis of the revenue numbers, forecasters are predicting modest growth for personal income tax receipts and a rebound in sales tax collections after a lackluster 2012-13. Corporate tax collections, however, are on the decline — due largely to tax cuts.
While the slow improvement in the U.S. economy has a hand here, policy decisions in Harrisburg are also playing a role. The Governor proposed a large long-term cut in state business taxes as part of his 2013-14 budget that did not make it into the final plan. Still, a number of other tax cuts and changes were enacted, including another reduction in the capital stock and franchise tax rate.
The approved 2013-14 budget delayed a plan to eliminate the capital stock and franchise tax altogether next year, preserving needed revenue to balance the 2013-14 and 2014-15 budgets. But it also included further cuts to the tax rate in 2014 and 2015 that will continue to reduce collections.
Corporate net income tax (CNIT) collections are expected to increase modestly, after a 20% jump in 2012-13 CNIT collections. With such a high-growth rate in 2012-13, more moderate growth this fiscal year is to be expected.
An unknown amount of the decline in CNIT collections in 2011-12 and the increase in 2012-13 is due to the Corbett Administration’s adoption of a temporary federal policy known as 100% bonus depreciation. This policy change, enacted for a period from late 2010 through 2011, allowed businesses to write off the cost of equipment in the year of acquisition rather than stretching it out over a period of years as is normally done. This policy would have reduced CNIT collections in 2011-12 and increased them in subsequent years.
New tax changes enacted along with the 2013-14 budget will likely reduce net CNIT collections by a modest amount — $5 million, according to the House Republican Appropriations Committee. These changes include an increase in the limit placed on the amount of net operating losses from previous years a business can use to offset its current year profits in order to reduce its taxes.